Foreign Experts Endorse a Short-sell Safety Net

China should rev up efforts to introduce short selling to shore up stock-market liquidity and help counter growing share-price volatility, foreign industry experts told a Shanghai conference yesterday.

Allowing securities lending can bolster market size and help curb equity slumps when short sellers start to cover positions, overseas brokers said during the fourth PASLA & RMA annual conference on Asian securities lending.

"I think what we find in mature markets is that securities lending can stabilize prices better," said Richard Steele, vice president at Worldwide Securities Services, Securities Lending & Market Products, at J.P. Morgan Europe.

"It provides liquidity so that traders can make better prices to investors."

China said late last year it had been studying proposals to let brokers lend money or securities to investors and would push forward when preparations are done. But industry insiders have said the launch of securities lending might face delays as regulators fear spooking the market.

Experts believe securities lending will be extremely helpful to deal with volatility seen in mainland stock markets this year following blistering gains in 2006.

"Securities lending in itself increases liquidity, and it's better for any markets," said Risa Muroi, head of Securities Lending Group Japan at Barclays Global Investors Japan Trust & Banking Co.

"But they (the markets) still need to understand the consequences of the increased liquidity." However, industry insiders said that investors shouldn't be concerned about short sales, which are mainly used in western markets as a hedge against trading risks.

The conference, which runs until tomorrow, was organized by Hong Kong-based Pan Asia Securities Lending Association and the Risk Management Association in the United States.

Many foreign brokers are keen to enter the securities-lending market if Chinese authorities deregulate the business, industry sources said yesterday.

(Shanghai Daily March 7, 2007)